NEW YORK – A class action lawsuit filed in a New York federal court accuses a benefit provider of not being transparent in reporting its financial condition, and thus violating the Securities and Exchange Act.
The Building Trades Pension Fund of Western Pennsylvania of Pittsburgh filed suit in the U.S. District Court for the Southern District of New York on July 21 versus Insperity, Inc., its Chief Executive Officer Paul J. Sarvadi and its Chief Financial Officer Douglas S. Sharp, all of Kingwood, Texas.
The suit brings claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, on behalf of all those who common stock from defendant Insperity from Feb. 11, 2019 through Feb. 11, 2020.
“Insperity provides human resource services and employee benefits to small and medium-sized business customers, including group health insurance plans. A majority of these plans are provided by UnitedHealthcare Insurance Company,” the suit states.
“According to Insperity, it considers its UnitedHealthcare offering to be one of ‘the most significant elements of its employee benefits package.’ Under its contract with UnitedHealthcare, Insperity is liable for plan costs (primarily medical claims from its customers’ employees) that exceed the fixed premiums paid and owed to UnitedHealthcare. Therefore, Insperity’s ability to properly estimate and report its medical claims expense is important to its investors.”
The suit claims over the one year-long class period from February 2019 to February 2020, the defendants “failed to disclose, and would continue to omit, a number of adverse facts pertaining to the company’s business, operations, and financial condition, which were known to or recklessly disregarded” by defendants:
• The company had failed to negotiate appropriate rates with its customers for employee benefit plans and did not adequately disclose the risk of large medical claims from these plans;
• Insperity was experiencing an adverse trend of large medical claims;
• As a mitigating measure, the company would be forced to increase the cost of its employee benefit plans, causing stunted customer growth and reduced customer retention; and
• The foregoing issues were reasonably likely to, and would, materially impact Insperity’s financial results.
The plaintiff says that Insperity’s deceptive business practices came to light through a series of public disclosures.
“First, on July 29, 2019, Insperity released its second quarter 2019 financial results. Despite delivering year-over-year growth and meeting analysts’ estimates, the company offered disappointing third quarter 2019 guidance and reduced its full-year 2019 guidance,” per the suit.
“Further, defendants revealed that in the second quarter 2019, Insperity had experienced an increase in large medical claim costs, which defendants described as an anomaly which would not impact projected cost benefit trends. On this news, Insperity shares fell $35.74 per share, or 25 percent.”
That was followed by the third-quarter results released later in 2019, which the suit explains “substantially missed” analysts’ estimates and were down year-over-year.
“In addition, Insperity materially reduced its full-year 2019 guidance. Defendants attributed these results to continued large medical claim costs, which they again attempted to describe as a mere anomaly to assuage investor concern. On this news, Insperity shares fell by $36.29 per share, or 34 percent,” the suit says.
“Finally, on Feb. 11, 2020, after the close of trading, Insperity released its fourth quarter and full-year 2019 financial results. On this date, Insperity revealed that, for the third quarter in a row, large medical claims had again impacted the company. Further, the company stated that it had restructured its contract with UnitedHealthcare to no longer have financial responsibility for any medical claims over $1 million. Insperity also offered disappointingly bearish guidance for the first quarter and full-year 2020.On this news, Insperity shares declined by $17.44 per share, or 20 percent.”
The suit claims the defendants “made false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the prices of Insperity stock, and operated as a fraud or deceit on class period purchasers of Insperity shares by misrepresenting the value and prospects for the company’s business, growth prospects, and accounting compliance.”
For counts of violating Section 10(b) of the Exchange Act against all of the defendants and Section 20(a) of the Exchange Act against the individual defendants, the plaintiff is seeking declaration that this action is a proper class action, designating itself as Lead Plaintiff, certifying plaintiff as a Class representative under Rule 23 of the Federal Rules of Civil Procedure and plaintiff’s counsel as Lead Counsel; compensatory damages in favor of plaintiff and the other class members against all defendants, jointly and severally, for all damages sustained as a result of defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon; reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and awarding such equitable/injunctive or other relief as deemed appropriate by the Court.
The plaintiff is represented by Francis Paul McConville, Christopher J. Keller and Eric J. Belfi of Labaton & Sucharow, in New York.
The defendants have not yet obtained legal counsel.
U.S. District Court for the Southern District of New York case 1:20-cv-05635
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com